Linkedinincorporation

To Incorporate or Not to Incorporate
NY State

By: Ragini Subramanian
Enrolled Agent/ Master Tax Advisor

Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited.

AGENDA

Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 2
The materials are not intended to provide legal advise. You must seek legal counsel before incorporating or otherwise.

Decision Matrix
Business objectives and typical business
entities in your industry

3

2 1
Available
Entity Choices
Costs to incorporate, Tax
Burden/Savings, and
Compliance Requirements

And Then Some More

Common Mistakes Before and After
Incorporation
Why Incorporate?
What Happens After Incorporation?
Useful Weblinks


CHOICE OF ENTITY


Entity Choices

Under NY State Business
Incorporation Laws

Under Internal Revenue
Code


Entity Choices

NY State
Internal Revenue Code
Business Corporation Laws

Sole proprietorship or Sole proprietorship or
D/B/A D/B/A
Limited Liability Partnership
Company (LLC) “C” Corporation
Partnership – GP, LLP “S” Corporation
General Business
Corporation (Inc.)
Professional Services
Corporation (PC)


A Brief Entity Description

Sole proprietor
• Owner of an unincorporated business by himself or
herself
• Not a separate legal entity
• Principal features are –centralization of management,
lack of perpetual duration/existence, owner personally
liable for all actions related to business activity



“C” Corporation
• An organization incorporated under the general business
incorporation statues of NY State
• Prospective shareholders exchange money, property, or
both, for the corporation’s stock
• Taxed as a “C” corporation unless elects to be taxed as
an “S” corporation
• It is a legal entity separate from the individual/s who
compose the business
• Principal features are – perpetual duration, limited liability
for owners, may afford easy transferability of interest,
possibly centralization of management



“S” Corporation
• An organization incorporated under the general business
incorporation statues of NY State
• Prospective shareholders exchange money, property, or
both, for the corporation’s stock
• Elects UNDER IRC to pass corporate income, losses,
deductions and credit through to their shareholders that is
elects to be taxed as a “S” corporation



Professional Services Corporation
• Incorporated under section 1503 of the NY State
Business Corporation Laws (as opposed to section 301 of
the NY State General Business Corporation statutes) (can
choose to be incorporated under NY State LLC statute
instead)
• Examples of Professions – attorney, accountant,
architect, nurses, chiropractors, etc
• Is automatically treated as a “C” Corporation BUT CAN
specifically elect to be taxed as an “S” corporation
• It is a legal entity separate from the individual/s who
compose the business
• Principal features are – perpetual duration, limited liability
for owners, may afford easy transferability of interest,
possibly centralization of management



Partnership
• Relationship between two or more persons who join to
carry on a trade or business. Each partner contributes
money, property, labor or skill, and expects to share in the
profits and losses of the business. No written agreement
is required.
• Is taxed as a Partnership, that is, a pass thru entity under
federal and NY tax laws BUT CAN specifically elect to be
taxed as a “C” or a “S” Corporation
• Principal features are – generally owners do not have
limited liability unless LLP partner, limitations on
transferability of interest, limitation on centralization of
management



Limited Liability Company
• An unincorporated business organization (other than a
partnership or trust) with one or more members, each
having limited liability for the contractual and other
liabilities of the company, formed under the NY State
Limited Liability Laws
• A single member LLC is taxed as sole proprietor unless it
elects to be taxed as a “C or “S” corporation
• A multi member LLC can elect to be taxed as corporation
– “C” or “S”, or partnership
• Principal features include – limited liability for owners,
limitations on transferability of interest, limitation on
centralization of management


Entity Choices
Partnership
Partnership “C” corporation
“S” corporation

MULTI-OWNER “C” corporation
Corporation “S” corporation

Partnership
LLC “C” corporation
“S” corporation
“C” corporation
LLC
“S” corporation
SINGLE-OWNER Sole Proprietor
“C” corporation
Corporation “S” corporation

INCORPORATION COSTS,
TAX BURDEN/SAVINGS, AND
COMPLIANCE


Costs and Compliance - NY State

Costs and Sole Partnership Limited Liability Corporation
Compliance Proprietorship Company
Filing File copy of File copy of File copy of Articles File copy of
requirements certificate of certificate of doing of Organization with Certificate of
doing business business as NY State Incorporation with
as sole partnership with the Department of NY State
proprietor with county State, Division of Department of
the county Corporation State, Division of
For PLLC further Incorporation
requirements
related to education,
may apply
Publish notice
related to LLC
formation or
publication of
articles of
organization in two
newspapers in
county of business

Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 16$25

Costs and Compliance - NY State

Costs and Sole Partnership Limited Liability Corporation
Compliance Proprietorship Company
Fees $25 to obtain $5 for each name $5 for each name $5 for each name
certified copy of search search search
D/B/A certificate $20 for name $20 for name $20 for name
reservation reservation reservation
$25 to obtain $200 for Articles of $125 for
certified copy of Organization, Certificate of
certificate of doing $50 to obtain Incorporation
business as affidavits of $10 for issuance
partnership publication of maximum 200
shares no par
value or par value
of up to $20,000.
Addl. Shares 5
cents per share
no par value and
1/20 of 1% for
shares with stated
par value.
Total $25 $50 $450 $235

Contents are material, non-public, confidential & proprietary. Unauthorized distribution or dissemination prohibited. 17$25

Components of Taxes

COMPONENTS OF TAXES ON BUSINESS INCOME

Income Tax Filing Fees, Self-employment,
Sales Tax, Employment Tax
MCTMT
Federal NY
(Franchise
Tax) FICA and UI-Federal
NY
FUTA and NY

Employer & Employer
Employee


Business Tax Returns A Snapshot

Attributes Sole Proprietor Partnership or “S” Corp. or an LLC “C” Corp or an LLC
or Multi-Owner LLC electing to be a “S” electing to be a
Single member Corp taxed as a “C” Corp
LLC (SMLLC)
Number of One each for Two each for Two each for federal Two each for
Income/ federal and NY federal and NY and NY federal and NY
Franchise Tax returns Partnership returns Corporate returns Corporate return
Tax returns need not be must be filed if it must be filed must be filed
filed if income has income, gain, whether or not there whether or not it
is below deductions or is income has income
threshold credits


Attributes Sole Proprietor or Partnership or “S” Corp. or an “C” Corp or an LLC
Single member LLC Multi-Owner LLC LLC electing to electing to be a
(SMLLC) be a “S” Corp taxed as a “C” Corp
Federal Form 1040 together Form 1065- Filed by Form 1120S- Filed Form 1120- Filed by
Income Tax with Schedule C the Partnership but no by “S” Corp. but no Corporation to report and
Forms (business income tax or self income tax is pay income tax on its net
income/expense) and employment tax is payable by the income. A “C” Corp,
Schedule SE (self payable by the corporation. It unlike partnership and
employment taxes) partnership. It passes passes all items of “S” corp., is not a pass
all items of income, income, loss, thru entity
loss, expenses to the expenses to Form 1040 –Corporation
partners by providing shareholders by owner files his/her tax
them with Form K-1 providing them with return to pay taxes on
Form 1040 –After Form K-1 income from all other
receiving K-1 from Form 1040 –After sources.
partnership, partner files receiving K-1 from Unlike in the case of a
his/her own income tax the corporation, Partnership and “S”
return reflecting items shareholder files corporation, the
from K-1 and income his/her own income corporate return does not
from all other sources tax return reflecting impact the personal
together with Schedule items from K-1 and return
SE (self employment tax income from all other
on income and sources
guaranteed payments
shown on K-1)



LLC (SMLLC)
NY State IT-201 to pay IT-204 to pay NY CT-3S to pay NY CT-3 or CT-4 to
Tax Forms income tax franchise tax franchise tax pay franchise tax
IT-201 individual IT-201 individual tax IT-201 individual
tax return return tax return
Filing April 15th Forms 1065 and Forms 1120S and Forms 1120 and
Deadlines IT-204 – April 15th CT-3S – March 15th CT-3/ CT-4 - March
Forms 1040 and Forms 1040 and 15th
IT-201 – April 15th IT-201 – April 15th Forms 1040 and
IT-201– April 15th



Attributes Sole Partnership or “S” Corp. or an LLC “C” Corp or an LLC
Proprietor or Multi-Owner LLC electing to be a “S” electing to be a
Single Corp taxed as a “C” Corp
member LLC
Employment None unless Partnership - None Employee Employee
Taxes and employees unless employee shareholder must be shareholder must be
Payroll Note that self Partner none. Note paid salary by the paid salary by the
Reporting employment however that partner corporation. As such corporation. As such
taxes are paid pays self corporation pays its corporation pays its
on Schedule employment taxes share of FICA, FUTA, share of FICA,
SE along with on Schedule SE UI, withholds FUTA, UI, withholds
Form 1040 along with Form employee share of employee share of
1040 FICA, FUTA. FICA, FUTA.
Note: Sole Corporation also files, Corporation also files
proprietor Note: Partnership reports, pays/deposits reports, pays/
never issues a never issues W-2 or these taxes deposits these taxes
W-2 or 1099 to 1099 to partners quarterly/annually on quarterly/annually on
himself/herself Forms 940, 941/944, Forms 940, 941/944,
NYS-45, W-4 and NYS-45, W-4 and
issues W-2 to issues W-2 to
shareholder shareholder
employee employee



LLC (SMLLC)
Estimated Yes quarterly Partnership/LLC – “S” Corporation – “C” Corporation –
Taxes no No Yes quarterly
Partner/LLC Shareholder – Yes Shareholder - No
member – yes quarterly
quarterly
Sales Tax Yes if Yes if applicable Yes if applicable Yes if applicable
applicable



LLC (SMLLC)
MCTMT No, unless net Yes, partnership Yes, “S” Corporation Yes, “C” Corporation
earnings from provided it has provided it has provided it has
self-employment employees and has employees and has employees and has
attributable to payroll expense in payroll expense in payroll expense in
MCTD exceed excess of $312,500 excess of $312,500 in excess of $312,500
$50,000 for the in any calendar any calendar quarter in any calendar
tax year quarter quarter

Other Sole proprietor – Partnership and LLC No No
Taxes or no – Yes must file Form
Filing Fees SMLLC – Yes IT-204-LL by
must file Form January 30th and pay
IT-204-LL by fixed dollar annual
January 30th fee of $25
and pay fixed
dollar annual fee
of $25


* Assumes single individual, no dependents and only business income. In each individual
case, tax impact will vary and will depend on marginal tax rate, corporate rate, other
taxable income, filing status, etc.
Potential Tax Impact*
Single Member “S” “C” Partnership
LLC or Sole Corporation Corporation (50% owner)
Proprietorship
(1) Gross Income From Business $100,000 $100,000 $100,000 $100,000

(2) Business Expenses $40,000 $40,000 $40,000 $40,000

(3) Salary to Owners by Business Entity N/A $25,000 $25,000 N/A

(4) Less: SE tax deductible by Owner on Form 1040 $3,685 N/A N/A $3,685

(5) Less: SE tax on owner employee salary N/A $1,663 $!,663 N/A
deductible by Business Entity on 1120 or 1120S
(6) Taxable Income on Form 1040 after standard $46,815 $48,838 $25,000 $46,815
deduction ($5,800), and personal exemption
($3,700)
(7) Net Income on Business Tax Return 1120S or N/A $33,338 Not $33,338 $93,630 Not
1120 or 1065 taxable to taxable to Pship
corp.
(8) Income Tax Payable by Owner/ Member/ $7,831 $8,331 $1,904 $7,831
shareholder on Form 1040 on line (6) above
(9) Income Tax Payable by Business Entity on line N/A $0 $5001 $0
(7) above
(10) SE Tax Payable by owner/partner/employee $7,370 $1,663 $1,663 $7,370
shareholder
(11) Total Tax Liability (8)+ (9)+ (10) $15,201 $9,994 $8,567 $15,201

Potential Tax Impact

Tax impact analysis varies among taxpayers and
depend on many factors,
• Income from other sources including that of
spouse
• Filing status
• Number of dependents
• Objectives for the business
A careful analysis is required in each individual
case
And we can help you do that


Other Compliance Requirements

Four prong test of IRC
• Continuity of life
• Limited liability
• Centralization of management
• Free transferability of interest
Must file election to be taxed as
• “S” or “C” Corporation or Partnership
Must obtain EIN# from IRS

OBJECTIVES AND
PRACTICES


Objectives and Industry Practice

Number and types of owners
Commitment to business
Owner’s marginal tax rate
Growth and income potential
Tolerance to adhere to continuous compliance
requirements
Type of business and industry practice
IRS four prong entity test


Common Errors


Common Errors Upon Incorporation

No entity election made
Entity election made with feds but not with State
Wrong entity election
Fails to keep records of entity election
Not obtaining EIN#
Professional services company incorporated as
general business corporation
Does not meet the parameters of the IRC four
prong entity test


Common Errors After Incorporation

Not filing tax return
Not filing correct tax return
Compliance with feds but not with NY and vice
versa
Forget to notify changes in business
Owner continues to represent herself/himself as
sole owner
Fail to meet the four prong entity test of IRC
Files wrong return or does not complete all sections
of the return
No minutes of meetings or corporate minutes
maintained


Lack of separation of business from individual
accounts
Employee owner/shareholder does not draw
compensation from the corporation
Sole proprietor pays salary via W-2 to
herself/himself
Partnership issues Form 1099 to partners
Partner draws salary via W-2 from partnership
Form 1099 not issued to independent contractors
Notice from IRS and NY DOR ignored



No one person or default person assigned to take
care of tax and compliance responsibility
Fails to maintain basis – “S” Corp. and Partnership
Fails to maintain correct tax year
• “S” corporation – calendar year
• C” corporation other than Personal Services
corporation can maintain fiscal year
• Sole proprietor – use tax year of the owner
• :Partnership – must use tax year of majority
partner
• LLC – must use fiscal year of majority interest
member

Why Incorporate?


Why Incorporate?

Shield personal assets from business
liabilities
Have “business status” for what you
do
Save on taxes
Potentially provide for estate planning


Incorporated, Now What
Happens?


What Happens After Incorporation?

Pay estimated taxes
Comply with payroll reporting
Conduct organizational meeting
Maintain accurate business records
Maintain corporate records
Respond to notices from IRS and NY State DOR
Comply with NY State employment laws
Ensure permits and licenses are up-to-date
File biennial/five year statement and pay fees


IRS Audit Rates/Statistics

By Tax Filing Type FY 2011

Returns Filed
(Prior Calendar Returns Audited Percentage Audited
Year)

Small Corporation 1,931,008 19,697 1.02%

Large Corporation 59,291 10,459 17.64%

Subchapter S 4,444,154 18,519 0.42%

Partnership 3,434,905 13,770 0.40%

Individual 140,837,499 1,564,690 1.11%


IRS Audit Rates/Statistics
By Income Level for Individuals (2009)

Percentage of Total Returns
Percentage of Returns Audited
Filed

No adjusted gross income 2.13% 2.15%

$1 - $24,999 40.51% 0.90%

$25,000-$49,999 24.31% 0.72%

$50,000-$74,999 13.44% 0.69%

$75,000-$99,999 7.99% 0.69%

$100,000-$199,999 8.69% 0.98%

$200,000-$499,999 2.25% 1.92%

$500,000-$999,999 0.43% 2.98%

$1,000,000-$4,999,999 0.23% 4.02%

$5,000,000-$9,999,999 0.02% 6.47%

$10,000,000+ 0.01% 9.77%

Useful Weblinks

Federal
• www.irs.gov
NY
• www.dos.ny.gov
• www.tax.ny.gov
Small business administration
• www.sba.gov
H & R Block

Linkedinincorporation

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Semelhante a Linkedinincorporation

Semelhante a Linkedinincorporation (20)

Linkedinincorporation